|
|
|
|
|||||
|
|
|
About the Industry
The Zacks Oil and Gas - Field Services industry comprises companies that primarily engage in providing support services to exploration and production players. These companies help in manufacturing, repairing and maintaining wells, drilling equipment, leasing of drilling rigs, seismic testing and transport and directional solutions, among others. Also, the firms help upstream energy players locate oil and natural gas and drill and evaluate hydrocarbon wells. Hence, oilfield services businesses are positively correlated to expenditures from upstream firms. Furthermore, with countries worldwide investing heavily in liquefied natural gas (LNG) terminals, a few oilfield service companies are extending their reach beyond the hydrocarbon fields and capitalizing on contracts for manufacturing equipment used in LNG facilities to decrease carbon emissions.
What's Shaping the Future of the Oilfield Services Industry?
Upstream Operations Profitable Despite Low Oil: The price of West Texas Intermediate (WTI) crude is trading below the $60 per barrel mark. Despite the softness of the commodity price, exploration and production activities in prolific shale plays like the Permian Basin are still profitable as the break-even oil price is lower. Thus, a handsome demand for oilfield services will be there from upstream companies as operating costs in the oil and gas resources are low, thanks to the advent of advanced drilling techniques like horizontal drilling and hydraulic fracturing.
Low Debt Exposure: Companies belonging to the industry have a significantly lower exposure to debt capital. This is reflected in the fact that the debt-to-capitalization of the industry’s composite stock stands at only 32.6%. Thus, by relying on their strong balance sheets, the companies belonging to the industry are well poised to sail through when the business environment turns challenging.
Cutting Costs and Emissions Through Smarter Technology:For producing oil at a lower cost with fewer emissions, upstream companies need smarter technologies from oilfield service players. Thus, there has been an increasing demand for electric subsea systems, digital monitoring and remote-control technologies of oilfield service companies, since the employment of these technologies allows oil and gas producers to produce more volumes with fewer environmental risks.
Zacks Industry Rank Indicates Bullish Outlook
The Zacks Oil and Gas – Field Services is a 19-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #53, which places it in the top 22% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may consider, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags S&P 500 & Sector
The Zacks Oil and Gas – Field Services industry has lagged the Zacks S&P 500 composite and the broader Zacks Oil – Energy sector over the past year.
The industry has soared 10.1% over this period against the S&P 500’s rise of 18% and the broader sector’s 11.3% growth.
One-Year Price Performance
Industry's Current Valuation
Since oil and gas companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/Earnings before Interest Tax Depreciation and Amortization) ratio. This is because the valuation metric takes into account not just equity but also the level of debt. For capital-intensive companies, EV/EBITDA is a better valuation metric because it is not influenced by changing capital structures and ignores the effect of non-cash expenses.
On the basis of the trailing 12-month EV/EBITDA, the industry is currently trading at 7.96X compared with the S&P 500’s 18.56X and sector’s 5.36X.
Over the past five years, the industry has traded as high as 18.18X and as low as 2.01X, with a median of 7.71X.
Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio
3 Oilfield Services Stocks Well Poised to Gain
Halliburton is an oilfield service giant and has a strong presence in all stages of the oilfield lifecycle. HAL has higher exposure to the more profitable international market than in North America. Among its key strategic priorities is backing its customers to meet the mounting demand for cleaner and more affordable energy. In return, Halliburton, currently carrying a Zacks Rank #2 (Buy), is deriving handsome cash flows and shareholders’ returns.
Price and Consensus: HAL
Oceaneering is well known for providing offshore energy companies with robotic solutions, along with engineered services and products. For 2026, OII expects its Aerospace and Defense (ADTech) business to continue contributing to its growth, with activities to pick up in the second and third quarters. Presently, Oceaneering carries a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: OII
Baker Hughes’ Oilfield Services & Equipment business unit is well-positioned to gain as exploration and production activities will continue to be profitable despite softness in oil prices. This signifies that demand for BKR’s oilfield services will be favorable. Baker Hughes also has a strong balance sheet, thereby providing the company with ample capacity for growth and acquisitions.
Price and Consensus: BKR
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
This article originally published on Zacks Investment Research (zacks.com).
| 1 hour | |
| 3 hours | |
| 3 hours | |
| 3 hours | |
| 4 hours | |
| 4 hours | |
| 5 hours | |
| 5 hours | |
| 5 hours | |
| 6 hours | |
| 7 hours | |
| Dec-20 | |
| Dec-19 | |
| Dec-19 | |
| Dec-19 |
Join thousands of traders who make more informed decisions with our premium features. Real-time quotes, advanced visualizations, backtesting, and much more.
Learn more about FINVIZ*Elite